HOVServices. Exceed Expectations. 22 nd Annual Report

Transcription

1 22 nd Annual Report

2 Table of Content Particulars Page No. Corporate Information 2 Chairman s Message to Shareholders 5 Directors Report 7 Management Discussion & Analysis Report 16 Corporate Governance Report 26 Consolidated Financials: Auditors Report 38 Balance Sheet 40 Profit & Loss Account 41 Cash Flow Statement 42 Schedules Statement of compliance conditions of Government of India approval U/s 212 of the Companies Act, Standalone Financials: Auditors Report 66 Balance Sheet 71 Profit & Loss Account 72 Cash Flow Statement 73 Schedules Balance Sheet Abstract 92 Notice of Annual General Meeting 93 1

3 Corporate Information Registered Office 3 rd Floor, Sharda Arcade, Pune Satara Road, Bibwewadi, Pune Tel: (91 20) ; Fax : (91 20) Head Office Dowlath Towers, 10 th Floor, 59 Taylors Road, Kilpauk, Chennai ; Tel : (91 44) ; Fax: (91 44) Registrar & Share Transfer Agent Karvy Computershare Pvt Ltd., 17-24, Vittal Rao Nagar, Madhapur, Hyderabad Tel: (91 40) ; Fax: (91 40) Auditors Lodha & Co., Chartered Accountants, 6 Karim Chambers 40, Ambalal Doshi Marg, Mumbai , Maharashtra, India Tel: (91 22) ; Fax: (91 22) Investor Relations, Media & Analyst Contact Mr. Shekhar Singh Batham shekhar.batham@hovservices.com investor.relations@hovservices.com Company Secretary & Compliance Officer Mr. Bhuvanesh Sharma investor.relations@hovservices.com 2

4 The Board of Directors Mr. Parvinder S Chadha Mr. Surinder Rametra Mr. Sunil Rajadhyaksha Mr. B R Gupta Mr. Ajay Madan Mr. Harish Bhasin Mr. Prakash Shukla Chairman & Executive Director Executive Director Executive Director Director Director Director Director The Executive Management Mr. Suresh Yannamani Mr. James Reynolds Mr. Kenneth Shaw President Chief Financial Officer & CAO, Global Executive Vice President HR, Global 3

5 Mission, Vision and Values The mission of HOVS is to deliver significant, identifiable value and improve return-on investment for our customers by delivering business solutions We are guided to our mission by our core values at HOVS we meet our responsibilities with integrity; provide an equal opportunity and a work environment for our employees to excel together as one team delivering continuous improvements - our customers who are always first at HOVS - Mr. Parvinder S. Chadha, Chairman & Executive Director 4

6 Chairman s Message Dear Shareholders, We fared well, I am glad to report, during the last year as we continued to refine our focus and doing more of what we do best - so far it appears to be right and has served us well. The credit belongs to our dedicated employees who shaped this strategy and helped transform the Company during this period from a niche player in a large growing market to a top provider of BPO, KPO solutions trusted as a valuable partner by customers and recognized by many prestigious outsourcing publications. Indeed, we have come a long way from our humble roots and have a long way to go to create value for our shareholders. In late 2007, as the markets were beginning to go through dislocation, we examined all aspects of our business and focused on key factors important to our customers and our growth. We continued to refine key targets of our strategy, including reinforcing cost management, heavy investment in technology, process re-engineering, investments in our core services, shortening turnaround time and increase quality. Our strategic goal is to deliver far better value for our clients and create a competitive position for us. We will continue to marshal our resources to invest in areas where we are already have strategic advantage and exit out of areas where we cannot reasonably in foreseeable future benefit. Our key market is the US with future growth coming from Europe, India and China. US markets cooled off over the last 2 years with an unemployment rate around 10%. Our strategy to invest in defensive and or /regulated sectors, diversified client base with majority of the business coming from FORTUNE 100 has paid off well except in the accounts receivable collections business which declined substantially. We exited this service to improve equity value for our shareholders; this will also allow us to improve our management focus and consolidate our position and thus, allowing us to invest more in services where we are already positioned well and now can better leverage our strengths. We believe IT Enabled Services industry is still in its infancy it has a lot of potential for future growth. Our customers have outsourced a very small portion of the business that could be outsourced and this is the biggest opportunity for us. Our industry also faces consolidation as it matures - scale does matter and clients are going to outsource more but to a fewer vendors. Another key area to support this phenomenon is longer decision cycle by our customers slowing down investments in their own core markets. This can potentially slow down the investments for innovation which in our opinion is key enabler for the BPO industry to continue to enjoy strong future growth. We address this potential slow down primarily by reducing the overall investment required by our customers by efficiencies of scale, performing some of the core functions and leveraging our end to end business solutions, seamlessly linking our hosted services platforms with our client s platforms. 5

7 Our challenge is to leverage our domain experience and success in current markets we serve into success in other rapidly growing markets where we have significant presence such as growing healthcare services market in India and China, two of the world s fastest growing economies. We strategically invested in India and China over the last decade to prepare for building a domestic business with our portfolio of services as and when these markets are ready. We are refining our end-to-end services by moving up in the value chain by adding services such as knowledge services, business intelligence and emerging BPO services. While we are well positioned, the challenge is to stay focused in light of so many opportunities as these economies go through explosive growth, retain best talent, continue to innovate most of all improve outcome for our clients. Our efforts and investments in technology has begun to pay off - our Profit after tax has improved from under 5% to over 10% in the last 2 years and our headcount has decreased from a high of 15,500 to approximately 8,900. We believe this healthy change in our value proposition will continue to bear fruit for the near term. We aspire to by being a global leader in the BPO industry whose value is recognized by clients for outcome we deliver, by shareholders for the profits we generate, recognition of our employees by our stakeholders and we aspire to be the most admired Company by our stakeholders. I thank you for your support and look forward to it in the coming years. With regards, Parvinder S Chadha Chairman & Executive Director 6

8 Directors Report Your Directors are pleased to present the Company s Twenty- Second Annual Report on the Business and Operations of HOV Services Ltd (the Company or HOVS ) together with the Audited Statement of Accounts for the year end March 31, HOVS is one of the largest end-to-end BPO companies, providing healthcare, finance and accounting, e-content management, document lifecycle, presentment, HR assist, and strategic consulting services across key verticals such as BFSI, Healthcare, Government, Telco, Publishing, Retail, Commercial and Industrial Manufacturing industries. FINANICAL RESULTS AND OPERATIONS: In the financial year , your Company recorded consolidated revenue of Rs. 8, million and loss after tax was Rs million. The brief financial highlights with comparison of previous year are as below: Particulars For the year end March 31, Rs. In Million 7 Consolidated Standalone INCOME Income from Operation 8, , Other Income , , EXPENDITURE Staff Cost 4, , General and Administrative Expenses 4,133.09* 3, , , Profit / (Loss) before Interest, Depreciation, Tax & Minority Interest (109.02) 1, (8.28) Less: Interest Less: Depreciation Profit / (Loss) before Tax & Minority Interest (697.44) (12.20) Less: Provisions for taxes Current Tax Deferred Tax (15.85) (0.78) 3.30 Fringe Benefit Tax Profit / (Loss) after Tax & before Minority Interest (761.32) (15.75) Less: Minority Interest (2.92) (0.34) - - Profit / (Loss) after Tax & Minority Interest (758.40) (15.75) *Includes Exceptional items of Rs Million.

9 1. RESULTS OF OPERATIONS: Performance on Consolidated basis: The consolidated total income decreased by 5.43 % in the current fiscal year, to Rs. 8, million from Rs. 8, million in the corresponding last fiscal year EBIDTA before exceptional item increased by 2.33% for the current FY to Rs.1, million from Rs. 1, million over the corresponding last fiscal year Net Profit decreased by % for the current FY to Rs. (758.40) million from Rs million over the corresponding last fiscal year The basic and diluted Earnings per share (EPS) before exceptional item are Rs for the current FY. Performance on Standalone basis: Total Income for the current FY increased 71.15% to Rs million from Rs million for the corresponding last fiscal year EBITDA increased by % for the current FY to Rs million from Rs (11.27) million over the corresponding last fiscal year Net Profit increased by % for the current FY to Rs million from Rs (15.75) million over the corresponding last fiscal year The basic and diluted Earnings per share (EPS) before exceptional item are Rs for the current FY. 2. SIGNIFICANT DEVELOPMENTS: (a) Key Highlights during the year were: Employee headcount at 8,900+ associates. Added over US $9.9 million in customer contracts in the fourth Fiscal Quarter , and $68.8 million for the Fiscal Year ended March 31, Top 100 clients represent over 79% of total revenues with the largest customer representing only 17% of total revenues. Developed and launched four new hosted services to expand our presence in Healthcare, e-learning and F&A services. The Company maintained strong liquidity position with DSO of 53 days, Debt to Equity Ratio of 1.4:1 and Net Bank Debt of US $102.8 million at March 31, 2010, down $16.3 million from March 31, (b) Key Accomplishment and Notewor orth thy y Items: International Association of Outsourcing Professionals (IAOP) ranked us: a. Best 20 Leaders by Industry Focus: Health Care; b. Best 10 Companies by Service Offered: Document Management; c. Best 10 Leaders by Service Offered: Financial Management; d. Best 20 Leaders by Region Served: India; e. Best 20 Leaders by Region Served: Canada; 8

10 (c) Material Transaction by HOV Services, LLC During the Year , the Company s Board of Directors approved the action of its wholly owned subsidiary, HOV Services, LLC to enter into a Material Transaction in order to focus on end-to-end high growth and margin services, improve operational efficiency and streamline the decision making process by selling certain assets: 100% interest in Bay Area Credit Services, LLC, 100% interest in HOV AR Management Services Private Limited and its 30 % minority interests in TRAC Holdings, LLC (TRAC) and SAM Holdings, LLC (SAM), to Rustic Canyon, LLC, an Associate, (which already has 70% ownership interest in TRAC & SAM) for $12 million USD in cash (approximately Rs. 5,563 Lakhs). Details related to the impact of this transaction have been provided in the Management Discussion & Analysis section. (d) Buyback of Equity Shares: During the year under review, the Buy-back offer of the Company through an open market stock exchange route was successfully completed. The details of this are as follows: Structural details of the buyback program: Date of Board Resolution January 13, 2009 for approval of Buy back Date of Public Notice cum January 13, 2009 Public Announcement Maximum Offer size Minimum Offer size Maximum Offer Price: 10,00,000 Equity Shares 2,50,000 Equity Shares Date of Opening of the February 2, 2009 Buy back: Duration of the Buy back: Execution method: Sources from which buy back is financed: Rs. 50/- Per Equity Share(Aggregate Amount Not more than Rs Crores). Up to January 12, 2010 (12 months from the date of Board resolution) Open Market Purchases through Stock Exchanges. Share Capital And Free Reserves FY March 31, 2010 FY March 31, 2009 Total Number of shares bought back: 20,000 43,023 63,023 Details of the shares bought back: 20,000 Equity shares at 43,023 Equity shares at average 63,023 Equity shares at average average rate of Rs rate of Rs per share rate of Rs per share per share Buyback price and the aggregate 20,000 Equity shares at 43,023 Equity shares at average 63,023 Equity shares at average amount paid on buyback: average rate of Rs per share; aggregating rate of Rs per share; aggregating amount ate of Rs per share; aggregating amount amount Rs. 6,52,400 Rs. 12,33,280 Rs. 18,85,680 9

11 Amount by which the share capital Total share capital and free Total share capital and free Total share capital and free reserves and free reserves including share reserves including share premium reserves including share premium including share premium are reduced premium are reduced on account are reduced by Rs. 2,00,000 and are reduced by Rs. 4,30,230 and by Rs. 6,30,230 and of buyback of the shares: Rs. 4,55,360 respectively Rs. 8,09,568 respectively Rs. 12,64,928 respectively Cancelled shares: 20,000 43,023 63,023 Amount transferred to Capital Redemption Reserve Account Rs. 2,00,000 Rs. 4,30,230 Rs. 6,30,230 (e) Appropriations: (i) (ii) Dividend: Your Board of Directors at the meeting held on May 24, 2010 recommended a final dividend of Rs. 2/- per fully paid up equity share of Rs. 10/- each for the financial year Earlier, your Board of Directors in their meeting held on January 28, 2010 had declared an interim Dividend of Rs. 2/- per share of Rs. 10/- each for the year ended March 31, 2010 and it was paid to the shareholders on February 18, For the financial year the Company does not have any unpaid dividend meant to be transferred to the Investor Education Protection Fund under Section 205C of the Companies Act, Transfer to Reserve: a. Your Company proposes to transfer Rs 29,23,466/- to the general reserve. b. Pursuant to the section 77 AA of the Companies Act, 1956 a sum equal to nominal value of the shares bought back is required to transfer to Capital Redemption Reserve account. The Company as of February 12, 2010, up to the closure of its Buy-back offer had bought back 20,000 equity shares. Therefore an amount of Rs 2,00,000/ - is transferred to Capital Redemption Reserve Account during the year under review. 3. Conservation of Energy, Technology Absorption, and Foreign Exchange: Particulars furnished pursuant to Companies (Disclosures of Particulars in the Report of Board of Directors) Rules, 1998: Conservation of Energy: The operation of Company is not energy intensive. The Company conducted energy audit in some of the units and has implemented recommendations such as keeping a spare stock of energy efficient compact fluorescent lamps (CFL) instead of conventional incandescent light bulbs, changing or cleaning the filters on air conditioners in the beginning of summer and increasing temperature settings from 21 0 C to 24 0 C on thermostats in a phased manner. This has resulted in reduction of energy consumption during this financial year. Research and Development: The Company has not undertaken any R&D activity in any specific area during the year under review, and hence no cost has been incurred towards the same. However, the Company believes technology is strategic to its growth and has invested heavily 10

12 in hosted platforms, automation, capture, presentation and analytics. The Company has development teams in US, India and Mexico implementing this vision. Technology Absorption, Adaptation and Innovation: The Company has been focused on providing state-of-the-art end-to-end BPO services to Clients. In carrying out this mission, HOVS has invested heavily in technology innovation, while leveraging its global footprint that is no longer confined by traditional borders through the use of a globally stable and secure network infrastructure that conforms to the highest international standards including ISO, HIPAA and SAS70. The Company has adopted Six Sigma practices and LEAN techniques in a majority of its centers and processes; a significant number of our team member have gone through Six Sigma training and are certified at higher levels of competency. The Company is constantly developing and adopting modern technologies and standards to grow its competitive advantage, to better serve its clients, retain employees and improve productivity and performance. Foreign Exchange Earnings and Outgo: Almost the entire earnings of the Company are from the export of services since the Company has no domestic business. The foreign exchange earnings and outgo is contained in the Note number 17(b) of schedule 14B to the Accounts of the Annual Report. 4. Particulars of Employees: Information as per Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, and forming part of the Directors report for the year ended March 31, 2010 is set out in the Annexure I to the Director s Report. 5. Human Resources: During the year the Company has taken utmost care of its employees deployed in wideranging cultures across the globe. The Company has well defined Human Resource Policies, excellent training facilities and a well established, healthy working environment. The Company organizes regular health checkups through recognized medical centers and the relationship of HOVS with its employees remains cordial throughout the year. 6. Directors Responsibility Statement: As stipulated in Section 217(2AA) of Companies Act, 1956, your Directors subscribe to the Directors Responsibility Statement and confirm as under: a) that in preparation of Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; and b) that the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss account of the Company for that period; and c) that the directors have taken proper and sufficient care of the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and d) that the directors have prepared the annual accounts on a going concern basis. 11

13 7. Fixed Deposit The Company has not accepted any deposits from the public within the meaning of Section 58A of the Companies Act, 1956, during the year under review. 8. Corporate Governance A separate section on Corporate Governance forming part of the Directors Report and the Certificate from the Company s Auditors confirming compliance of Corporate Governance norms as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges is included as a separate section in this Annual Report. 9. Management Discussion and Analysis Management Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges is presented as a separate section forming a part of this report. 10. Auditors The Statutory Auditors M/s Lodha & Co, Chartered Accountants, Mumbai, hold office till the conclusion of ensuing Annual General Meeting and have expressed their willingness and being eligible to continue, if re-appointed. You are requested to consider their re-appointment. 11. Directors During the year under review Mr. Prakash Shukla was inducted as an Additional Director w.e.f. October 26, 2009 and holds office up to the date of ensuing Annual General Meeting. His appointment requires the approval of members at the ensuing Annual General Meeting. The Company has received a notice in writing from a member pursuant to Section 257 of the Companies Act, 1956 proposing the candidature of Mr. Prakash Shukla for the office of Director, liable to retire by rotation. Brief resume of the Director proposed to be appointed, as stipulated in Clause 49 of the Listing agreement with the stock exchanges is provided in section of Notice of the Annual General Meeting. 12. Subsidiary companies and consolidation of Accounts As per Section 212 of the Companies Act, 1956, the Company is required to attach the director s report, balance sheet, and profit and loss account of the subsidiary companies. The application was made to the Central Government of India for an exemption from such attachment as the Company presents the audited consolidated financial statements in the Annual Report. The Government of India has granted exemption to the Company from complying with section 212 for all the subsidiary companies vide its approval letter dated February 5, Pursuant to the conditions of Government of India approval the statement thereto is annexed to the Annual Report. Accordingly, the Annual Report does not contain the financial statements of the subsidiary companies. We will make available the audited annual accounts and related information of 12

14 subsidiary companies, where applicable, upon request by any of our investors. These documents will also be available for inspection during business hours at our registered office. 13. Employee Stock Option Plan (ESOP) The Company has instituted HOVS Stock Option Plan 2007 and HOVS Stock Option Plan 2008 for its employees and for employee s of its subsidiary companies as detailed below: Plan Shareholder s No. of Options No. of Options for Total Approval Date for employees employees of of the Company subsidiary companies HOVS Stock Option Plan 2007 July 21, , ,000 1,100,000 HOVS Stock Option Plan 2008 September 30, , ,000 Options were issued to employees at an exercise price not less than closing price of the stock exchange where there is highest trading volume, prior to the date of meeting of the Compensation & Remuneration Committee in which options are granted. The options will vest in a phased manner within five years as 10% in each first to four years and balance 60% at the end of fifth year. No options have been granted under Plan i) The details of grant made and lapsed under Plan 2007 are as below: Plan 2007 Employees of Employees of the Total the Company subsidiary Companies Options Granted Grant in , , ,500 Grant in , , ,050 Total Grant 169, , ,550 Options Lapsed as of April , , ,600 Options in force 163, , ,950 Balance options available 237,000 95, ,050 ii) Information of grant made to directors and employees: Options granted date Directors Other than Directors Total (A+B) (A) (B) July 21, , , ,500 October 25, ,000 20,000 July 30, , , ,050 October 08, ,000 55,000 Total Granted 15, , ,550 Options lapsed , ,600 Options outstanding 10, , ,950 13

15 iii) The details of options granted under the two plans are given in the table. As of March 31, 2010 Plan Plan a. Options Granted: 9,13,550 Nil b. The Pricing formula: Closing price of the stock exchange where there is highest trading volume, prior to the date of the meeting of the Compensation & Remuneration Committee in which options are granted. Nil c. Options Vested: Nil Nil d. Options Exercised: Nil Nil e. Total number of shares 9,13,550 Nil arising as a result of exercise of options: f. Optioned lapse: 1,45,600 Nil g. Variation of terms of option: NA NA h. Money realized by exercise of options: NA NA i. Total number of options in force: 7,67,950 Nil j. Employee wise details of Nil Options granted to: i. Senior Management personnel: 7,67,950 Nil ii. Employee receiving 5% or more of the total number of options granted during the year: Nil Nil iii. Employee granted 1% or more of the issued capital: Nil Nil k. Diluted EPS on issue of shares on exercise calculated in accordance with AS 20. NA NA 14. Acknowledgement Your Directors express their appreciation for assistance and co-operation received from employees, shareholders, customers, suppliers, bankers and government authorities for their continued support to the Company during the year. For and on behalf of the Board of Directors Place: Chennai Date : May 24, 2010 Parvinder S Chadha Chairman & Executive Director 14

16 Annexure I to the Director s Report Information in term of the provisions of Section 217(2A) of the Companies Act, 1956 Name Title/Role Qualifications Age Experience Joining Gross Previous Employment (Years) date Remuneration and Designation (Rs) Parvinder S Chairman & B.S. Electrical Engineering & April 1, 24,00,000/- Osicom Technologies Chadha Executive Graduate-Level coursework in 2006 Inc.US, Chairman Director computer science at the Illinois & CEO Institute of Technology. Surinder Executive B.E. Mechanical Engineering, April 1, 24,00,000/- ATEC Group Inc., Rametra Director Master s degree in Industrial 2006 NY, US, Chairman Engineering from the Indian & CEO Institute of Technology, India and an MBA in Finance from New York University. Sunil Executive B.S. Telecommunications & April 1, 24,00,000/- Meret Optical Rajadhyaksha Director Electronics and M.S. degree in 2006 Communications, Electrical Engineering from President & COO Illinois Institute of Technology. 15

17 Industry Overview: MANAGEMENT DISCUSSION AND ANALYSIS The IT- Enabled Services (ITES) industry is still in its infancy with substantial potential for future growth. Our clients have outsourced a very small portion of the business that could be outsourced and this is the biggest opportunity for the Company. Our strategic vision is to leverage Company s domain expertise and success in current markets which it serves to the other rapidly growing markets where it has significant presence such as the growing healthcare and telecom services market in India and China, the two of the world s fastest growing economies. It is believed that clients are going to outsource more but to fewer vendors. This consolidation is inevitable in the industry as scale does matter for BPO companies. Clients who want to outsource the entire process will favor based on industries pay per use or pay per member models. The obvious examples are healthcare in the emerging markets or the rapidly growing telecom market in India and China, where core assets and functions are being outsourced. As scale begins to play a bigger role, smaller companies are going to look for safety in higher end offerings such as KPO, business intelligence and emerging BPO services. The larger companies will either have to acquire these services or build their own platforms to serve their clients better. The BPO industry similar to the ITES industry will most likely develop/grow domestic footprints in the markets affected by the global slowdown by building a robust local business and delivery model in order to counter the concern related to recession or government policies. Current Scenario: As per NASSCOM press release dated Feb 04, 2010: IT-BPO industry domestic market is expected to witness 12% growth in FY 09-10; to reach Rs.662 billion. Indian IT-BPO industry continues to dominate the global market place with 51 percent market share. Indian IT-BPO industry exports grew by 5.5% to USD 49.7 billion by FY The sector accounted for over 10 percent of total FDI investment in the last decade. The BPO market is and has been in a steady state of growth for the past ten years. As per NASSCOM STRATEGIC REVIEW 2010 IT-BPO industry is estimated to aggregate revenues of USD 73.1 billion in FY2010, with the IT software and services industry accounting for USD 63.7 billion of revenues. The BPO industry remains as the fastest growing segment of the IT services sector, growing annually at 6% and is estimated to reach USD 12.4 billion in As a proportion of national GDP, the sector revenues have grown from 1.2 percent in FY1998 to an estimated 6.1 percent in FY2010. Its share of total Indian exports (merchandise plus services) increased from less than 4 percent in FY1998 to almost 26 percent in FY2010. Geographic focus: The year was characterized by a strong revival in the US, which increased its market share to 61 percent. Emerging markets of Asia Pacific also contributed significantly to overall growth. 16

18 Vertical markets: The industry s vertical market mix is well balanced across several mature and emerging sectors. The year 2009 witnessed increased adoption of outsourcing from our biggest segment the Banking, Financial Services and Insurance (BFSI), and Telemarketing to new emerging verticals of retail, healthcare and utilities. Domestic market: Domestic IT-BPO revenues are growing at almost 8.5 percent to reach INR 1,088 billion in FY2010. Rise of Indian corporations facing competitive market conditions through an increasingly globalised Indian market, increased spend by the government in several e-governance initiatives, enhanced connectivity and increased levels of IT spending are key factors, which make the domestic market lucrative today. The growth is also fueled by large deals in the telecom and BFSI space. Outlook: The Indian IT is on the growth trajectory lead by IT-BPO industry. As per Nasscom, Indian IT-BPO industry continues to dominate the global market place with 51 percent market share and APAC is the fastest growing geography with an estimated growth of 10%. COMPANY SUMMARY HOV Services Limited (the Company or HOVS ), one of the largest end-to-end BPO Company headquartered in Chennai, India provides healthcare, finance and accounting, e-content, document management and business intelligence services across key industries such as BFSI, Healthcare, Government, Telecom, Publishing, Retail, Commercial and Industrial Manufacturing. HOVS RightShore delivery centers are strategically located in India, North America, China and Mexico with over (8900+) associates with over 36 delivery centers servicing over 50% of the FORTUNE 100 and some of the other largest companies in the industries served. 17

19 As a leader in the Global KPO space, HOVS develops fully integrated solutions that combine bestof-breed technology, leading-edge infrastructure and domain expertise to give customers the most streamlined process. HOVS applies LEAN Six Sigma technique to improve quality, reduce cost and improve cycle time of its customer s business processes. The Company offers a diverse range of services including healthcare payer/provider services, strategic consulting and construction services, employment verification services, finance and accounting services, content transformation and document lifecycle solutions. Below is a highlight of some of the key services offered: Our Strategy and Key Differentiators: HOVS strategy weaves many items to help us differentiate and position the Company for success and a sample of some of key differentiators are: (1) Innovation continuous enhancement of delivery of services by combining domain expertise and technology; (2) Business model by service type to create win-win partnership between HOVS clients and the Company. For example, pay per member or by outcome based; (3) Hosted services combined with delivery from right shore locations; (4) The best customer experience from initial engagement to deployment; (5) Continuous improvements and delivering highest end-to-end process quality; and (6) Better overall cost of ownership. 18

20 Value Creation HOVS mission is to create value that benefits Customers, Employees and Shareholders Key Stakeholder Deliverable Value Creation CUSTOMERS Provides quality products and services Enhances their ability to operate business Delivered reliably and cost effectively EMPLOYEES Conduct business ethically Innovation Equal opportunities and career enhancement Higher retention rate Rewards for competence Infusion of high caliber individuals Performance and dedication to our customers Personal growth Innovation SHAREHOLDERS Prudent investment Higher shareholders value Professional business management Better returns on investment Strategy and execution honed by experience We aspires to Exceed Expectation through our innovative solutions, superior customer service and competitive desire to be the best BPO provider to our customers and their industry - Mr. Suresh Yannamani, President 19

21 Product and Service delivery Architecture HOVS provides complete end to end technology based solutions to enhance and integrate its process with the existing setup prevailing at client s place. HOVS combines various best-of-breed technology, leading-edge infrastructure and domain expertise to give its clients the most streamlined process available benefiting clients to reduce cycle time and operation cost. 20

22 Delivery Model HOVS endeavor to deliver services to clients in the most efficient manner and customized the engagement based on the specific needs. HOVS recommended approach is geared towards delivering significant ROI with functions fully outsourced. An example of various delivery models below highlights various steps involved and responsibility of the parties. 21

23 Technology Innovations Technology deployment is strategic to growth and the Company has invested heavily in automation, capture, presentation and analytics to grow its competitive advantages, better serve its clients, retain employees and improve productivity and performance. Effective use of technology to improve operations efficiency will continue to lead to better, faster, and cheaper solutions for clients. The Company is leveraging its global footprint to take advantage of shrinking distances and blur traditional borders bypassed by global, stable, secure network infrastructure all while conforming to international standards including ISO, HIPAA, HITECH, PCI and SAS70. HOVS new technologies developed in last 2 years to enable: Optical character recognition technologies platforms - ACE, TurboScan, O-Coding Data Capture Platforms - Firefly Platform for Healthcare and F&A. Enhanced Services in healthcare - Provider Management Portal for converting paper claims to EDI claims, PCH TM paper to paperless claims platform. Komodo business rule engines deployed to enable HOVS rules and Customer Rules for very rapid deployment by customer by project HMS productivity and quality tracking by employee worldwide, utilization of assets, management of assets, employee communications, secure portal for company and employees. HMS has been rolled out across all sites US, India and China where healthcare is processed. HR Assistance onboarding, background checks, learning management, employee portal, HR record management and online induction platform. HOVS new technology platform has been developed to address the following issues: To make the Company less dependent on offshore and address US business that cannot be sent offshore, HOVS undertook development of new workflow, business rule engines, and redesigned processes to launch enhanced services in Healthcare and A/P with work underway for additional verticals. Faster deployment of new business. Faster and better change management making the Company more responsive. Improve productivity to reverse the increasing headcount and utilization. 22

24 Human Resources HOVS employee remunerations, rewards and recognition policies are directly linked to performance, incentivizing productivity and efficiency throughout. All exceptional services are duly recognized and awarded through an employee recognition and awareness program. Adequate training is provided both in-house and using external faculties and facilities at all levels. Management staffs are also considered for relevant training by sponsoring to various seminars, lectures, communication and other soft skill development programs, stress busting programs etc. Facilities solicit and display employee artwork and employees at all levels are exposed to the benefits of Yoga which is available thro a trained Yoga consultant. There is also an in-house e-magazine to bring out important happenings and to encourage in-house talents. An employee communication portal pushes for regular corporate and management communication. Once a month all employees are addressed by Senior Management and apprised of the developments taking place during that period. The Company follows open policy to redress the grievances if any. Career Progress has been drawn up for all levels and there is clarity of growth opportunities within the Company. Employees are encouraged to refer their friends for any positions to be filled in and also paid adequately if such referred persons are appointed. The employee relations with the Company are cordial at all locations and the Management is actively involved in making sure the Company meets the law of the land and set the high standards for all to achieve. We aspire to Exceed Expectation by being the employer of choice in each of our facilities, by attracting and keeping highly skilled individuals who work as a team to generate profitable results. -Mr. Kenneth L Shaw, Executive Vice President Human Resources. 23

25 Internal Controls HOVS has a well defined internal control systems and well documented procedures. There are adequate checks and balances at all levels. The mandate goes beyond financial transactions to even review all other functions of various departments, viz Purchase, Sales and Marketing, Operations, Payroll, HR and may others. The Internal Audit is both outsourced to professional firms and team of internal auditors who reviews all the policies, procedures and also audits most of the transactions. The reports submitted every quarter is reviewed by the Management and Board of Directors and if needed corrective actions are taken. Additionally, pursuant to the Clause 49, the Corporate Governance of the listing agreement with stock exchanges, the Company is required to comply with additional standards. These standards include a certification by Company s Chief Executive Officer and Chief Financial Officer upon the effectiveness and deficiencies of internal controls and the certificate is placed before the Audit Committee meeting every quarter. Threats & Risk HOVS challenge is to leverage its domain experience and success in current markets it serve, to other rapidly growing markets where HOVS have significant presence such as growing healthcare services market in India and China, two of the world s fastest growing economies. The appreciation of the Indian Rupee against the US Dollar can affect margins. Competition from global companies setting shops in India, China and Mexico as well as domestic BPO companies pose threat by price and margin erosion. Competition from other developing Countries is also a threat. However, HOVS root in technology and adherence to existing and emerging standards, delivering the highest quality, global delivery platform enable HOVS to compete well against some deeply entrenched companies. The rising inflation and salaries along with high attrition among associates is a threat. This is planned to be offset with increased productivity and increased use of technology to reduce the dependence on manpower. Impact of Financial Performances i) Impact of Material transaction: The Company s wholly owned subsidiary, HOV Services, LLC sold certain assets: 100% interest in Bay Area Credit Services, LLC, 100% interest in HOV AR Management Services Private Limited, and its 30 % minority interests in TRAC Holdings, LLC and SAM Holdings, LLC for $12 million USD in cash (approximately Rs. 56 Cr), which resulted in an exceptional loss of Cr. Below are the proforma results for the year ended March 31, 2010 and the Fourth Quarter and year to date excluding the ARM business for the related period: Particulars Year ended Year ended % Change Quarter ended Quarter ended % Change March 31, March 31, March 31, December 31, Rs In Million's EXCLUDING ARM EXCLUDING ARM EXCLUDING ARM TOTAL INCOME 7, , % 1, , % EBITDA 1, , % % EBITDA % 18.3% 16.4% 18.6% 18.2% PAT % % PAT % 10.4% 8.8% 10.7% 10.5% Excluding ARM Impact Basic and Diluted EPS

26 Consolidated Financial Proforma Performance for the Fiscal Year ended March 31, 2010, excluding the Material Transaction Consolidated total Income for the FY2010 increased by 0.9% to Rs 7,353.0 million from Rs 7,288.6 million for the fiscal year EBITDA increased by 13.1% for the FY2010 to Rs 1,349.3 million from Rs 1,193.1 million over the last fiscal year and EBITDA margins increased from 16.4% to 18.3%. Net Profit increased by 18.8% for the FY2010 to Rs million from Rs million over the fiscal year Basic and diluted Earnings per Share (EPS) are Rs for the fiscal year. Pro forma diluted EPS is Rs after giving effect to all shares that would be issued. Consolidated Financial Proforma Performance for the Fourth Quarter ended March 31, 2010, excluding the Material Transaction Total Income for the fourth quarter increased 1.6% to Rs 1,843.5 million from Rs 1,815.0 million over the third quarter FY2010. EBITDA increased by 3.9% for the fourth quarter to Rs million from Rs million over the third quarter FY and EBITDA margins increased from 18.2% to 18.6%. Net Profit increased by 3.1% to Rs million from Rs million over the third quarter FY The basic and diluted EPS for this three month period is Rs per share. ii) Impact of Dividend declaration: The Board of Directors had declared an interim Dividend of Rs. 2/- per share of Rs. 10/- each for the year ended March 31, 2010 and was paid to the shareholders on February 18, Keeping in view the long term interest of the shareholders, the Board of Directors at the meeting held on May 24, 2010 recommended a final dividend of Rs.2/- per fully paid up equity share of Rs. 10/- each for the financial year This commend yours approval for declaration. Your Company s financial performance in the current fiscal and restructuring of its subsidiary instigated during the year testify versatility of our business model that is pedestal on aspiring to Exceed Expectation for its clients, shareholders and employees. Mr. James Reynolds, Global Chief Financial Officer 25

27 ANNEXURE TO THE DIRECTORS REPORT REPORT ON CORPORATE GOVERNANCE (Pursuant to the Clause 49 of the Listing Agreement with Stock Exchanges) 1. HOVS Philosophy of Corporate Governance The objective of Corporate Governance is to achieve excellence in business thereby increasing shareholders worth in the long term which can be achieved keeping the interest of shareholders and comply with all rules, regulations and laws. The Board of Directors and Senior Management of your Company observed the following; Carry out their duties in an honest and businesslike manner and within the scope of their authority; Responsible for the oversight of the assets and business affairs in an honest, fair, diligent and ethical manner; Make and enact informed decisions and policies in the best interests of the Company; and Adhere to the standards of care, loyalty, good faith and the avoidance of conflicts of interest that follow. 2. Board of Directors The Board of Directors along with its committees provides direction and vision for the function of the Company. The Board functions either as a full Board or through various committees constituted to oversee specific operational areas. The Board is entrusted with the task of managing the Company directly or through delegation of authority to executive management which provides the Board detailed reports on its performance periodically. The Board of Directors consists of eminent professionals with considerable professional expertise and experience in business and industry. (a) Size and Composition of Board of Directors The Board has an optimum combination of executive and non executive Directors and presently more than fifty percent of the Board comprises of independent Directors. The Board comprises of seven Directors, consisting of three executive and four non executive directors. All four non executive directors are Independent Directors. The Chairman of the Company is an Executive Director. (b) Non Executive Directors Compensation and Disclosures The Non Executive Directors on the Board of the Company are paid sitting fees for attending the Board Meeting and meetings of the various committees of the Board of Directors. All such fees paid to the Non Executive Directors are fixed by Board of Directors. No compensation is paid to the Non Executive Directors. The Non Executive Directors have been granted stock options under Employee Stock Option Plan 2007 of the Company. The stock options were issued at latest available closing price of the stock exchange where there is highest trading volume, prior to the date of the meeting of the Compensation & Remuneration Committee in which options are granted. 26

28 (c) Details of Stock Options Granted to Non Executive Directors: Sr. No. Name of Director Stock Options 1 Mr. Ajay Madan 5,000 2 Mr. B R Gupta 5,000 Other provisions related to Board and Committees The gap between two meetings does not exceed four months. Leave of absence was granted to the Directors as and when requested by them. All the information required to be placed before the Board as per Clause 49 of the Listing Agreement was made available to the Board for their discussion and consideration. None of the Directors on the Company s Board is a member of more than ten committees and Chairman of more than five committees across all the companies in which he is director. All the directors have made necessary disclosure regarding committees positions held by them in other companies. None of the directors is having any relation with other directors of the Board. The composition of Board, attendance at Board meeting during the year under review, number of Directorship, membership and their shareholding in the Company is given below; Composition of Board of Directors: Name of Director Category Board Meetings Attended Other Directorships/Board Held Attended Last AGM Committees (Number) Director- Committee Committee ship Member- Chairmanship ship Mr. Surinder Rametra Promoter Executive 5 4 Yes Mr. Parvinder S Chadha Promoter Executive 5 4 Yes Mr. Sunil Rajadhyaksha Promoter Executive 5 3 Yes Mr. Ajay Madan Non-Executive Independent 5 4 Yes Mr. B R Gupta Non-Executive Independent 5 5 Yes Mr. Harish Bhasin Non-Executive Independent 5 5 Yes Mr. Prakash Shukla* Non-Executive Independent 5 1 No *Appointed as an additional director w.e.f October 26, 2009 The details of Board Meetings held during the financial year are as under; Sr. No. Date of Board Meetings Board Strength No. of Directors Present 1 June 4, July 28, October 26, December 12, January 28,

29 Details of Remuneration of all the Directors Sr. No. Name of Director Salary & PerquisitesRs. Bonus/Commission Sitting FeesRs. Stock Options 1 Mr. Surinder Rametra 24,00,000 Nil Nil Nil 2 Mr. Parvinder S Chadha 24,00,000 Nil Nil Nil 3 Mr. Sunil Rajadhyaksha 24,00,000 Nil Nil Nil 4 Mr. Ajay Madan Nil Nil 1,50,000 5,000 5 Mr. B R Gupta Nil Nil 1,50,000 5,000 6 Mr. Harish Bhasin Nil Nil 1,50,000 Nil 7 Mr. Prakash Shukla Nil Nil 20,000 Nil Notes: 1) The Company has not entered into any pecuniary relationship or transaction with the Non-Executive Directors. 2) The Company had received the Central Government approval vide its letter dated November 2, 2007 for the payment of remuneration of Rupees. 4,00,000/- (inclusive of all) per month to each of the whole-time Directors. 3. Audit Committee The Company has set-up an Audit Committee pursuant to requirements of Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement. The primary objective of the Audit Committee is to monitor and effectively supervise the Company s financial reporting process with a view to provide accurate, timely and proper disclosures. Majority of the Members of the Audit Committee, including the Chairman of the Committee have accounting and financial management expertise. Mr. B R Gupta, who was the Chairman of the Audit Committee at the time of previous Annual General Meeting, was present at the Annual General Meeting of the Company held on July 25, Mr. B R Gupta has expertise of 43 years in insurance and financial markets. The Chairman of the Company, Statutory Auditors, and Chief Financial Officer attend the meetings of the Audit Committee as invitees. Mr. Bhuvanesh Sharma, Company Secretary & Compliance Officer acts as Secretary to the Audit Committee. The composition of Audit Committee is as follows: Name Mr. B R Gupta Mr. Ajay Madan Mr. Harish Bhasin Mr. Surinder Rametra Designation/Category Chairman (Independent Director) Member (Independent Director) Member (Independent Director) Member (Executive Director) 28

30 The details of Audit Committee Meetings held during the financial year are as under: Sr. No. Date of Committee Meetings Committee Strength No. of Members Present 1 June 4, July 28, October 26, January 28, Compensation & Remuneration Committee The Company has set-up a Compensation & Remuneration Committee, pursuant to the requirements of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) and as per Clause 49 of Listing Agreement (s) with the Stock Exchanges. The Committee comprising of Mr. Ajay Madan, Mr. B R Gupta and Mr. Harish Bhasin, all Independent Directors with Mr. Ajay Madan as Chairman of the Compensation & Remuneration Committee. The brief terms of objective of the Committee are as under: Make recommendation for the appointment on the Board. Frame Companies policies on human resource with the approval of the Board. Recommend compensation payable to the executive directors. Review of HR Policies/initiatives & senior level appointments. Administer and supervise Employees Stock Option Schemes. The Committee meets as and when required and the details of its Meetings held during the financial year are as under: Sr. No. Date of Committee Meetings Committee Strength No. of Members Present 1 July 28, Investor Grievances Committee The Company has set-up an Investor Grievances Committee consisting of Mr. Ajay Madan, Chairman of the Committee, Mr. Surinder Rametra and Mr. Sunil Rajadhyaksha. The Committee looks into the matters relating to redress of shareholders and investors complaints such as transfer of shares, non-receipt of Annual Reports, non-receipt of dividend declared etc. The Investor Grievances Committee had authorized Mr. R. Vijayakumar, Chief Financial Officer, India and Mr. Bhuvanesh Sharma, Company Secretary & Compliance Officer to overview the task of investor s servicing and redress their grievances by having fortnightly review calls to take care of requirements related to shareholders quarries, re-materialization of shares, issue of duplicate share certificates, issue of new certificates in replacement of those that are torn, defaced, lost or destroyed, split/consolidation of share certificates and any other matter as and when received from the shareholders of the Company and maintained the records thereof. The meeting of the Committee during the year was held on October 26,

31 During the year under review the number of investors complaints received was 5. All of them were satisfactorily resolved/ replied, and no complaint/request is pending as on March 31, Other Committees Constituted by the Board The Board of Directors has constituted the other committees as detailed below; Sr. No. Name of the Committee Members Date of Constitution Brief Terms of Reference 1 Selection Committee Ajay Madan March 9, 2006 In terms of Director s Relatives Parvinder S Chadha (Officer or Place of Profit) Rules, IPO Committee Parvinder S Chadha March 9, 2006 To administer the process of Initial Surinder Rametra Public Issue. Sunil Rajadhyaksha 3 Investment Committee B R Gupta October 25, 2006 To administer the investment of funds. Surinder Rametra Sunil Rajadhyaksha 4 Acquisition Committee Ajay Madan December 21, 2006 To administer the matters of acquisitions. Sunil Rajadhyaksha Surinder Rametra 5 Capital Committee Parvinder S Chadha February 26, 2007 To administer capital expansion. Surinder Rametra Sunil Rajadhyaksha 6 Steering Committee Ajay Madan October 8, 2008 To review Material Transaction. B R Gupta 7. General Body Meetings a) The details of last three Annual General Meetings held are as under: Year Location Date Time Special Resolutions passed Le Meridien, Raja Bahadur Mill July 21, :30 AM Yes Road Pune Taj Blue Diamond, 11, Koregaon September 30, :30 AM Yes Road, Pune Le Meridien, Raja Bahadur July 25, :00 Noon Yes Mill Road Pune b) Extra Ordinary General Meeting: No Extra Ordinary General Meeting was held during the year. 8. Subsidiary Companies The Company does not have any material non-listed Indian Subsidiary companies, whose turnover or net worth (paid up capital and free reserves) exceeds 20% of the Consolidated turnover or net worth respectively, of the Company. 30

32 The major updates on about the unlisted subsidiary companies are regularly presented to the Audit Committee and the Board in addition to the following key points which are taken up in the Audit committee/ Board meeting. i) Minutes of the all the meetings of the subsidiary companies held between two Board meetings; and ii) Major dealings of subsidiary companies. 9. Disclosures Requirements The detailed Management Discussion and Analysis Report are given separately in the Annual Report. During the year , actions of its wholly owned subsidiary, HOV Services, LLC entering into a material transaction in order to focus on end- to- end high growth and margin services, improve operational efficiency and streamline decision making process by selling certain assets : 100% interest in Bay Area Credit Services, LLC, 100% interest in HOV AR Management Services Private Limited and its 30% minority interest in TRAC Holdings, LLC (TRAC) and SAM Holdings, LLC (SAM), to Rustic Canyon, LLC, an Associate, (which already has 70% ownership interest in TRAC & SAM) for $12 million USD in cash (approximately Rs.5,563 Lakhs). During the year , the Company declared an interim dividend of Rs. 2/- per equity share of Rs. 10/- each of the Company; record date was February 3, 2010 and payment date was February 18, The Company was not subject to any non-compliance and no penalties or strictures were imposed on the Company by Stock Exchanges, SEBI or any statutory or other authority on any matters relating to capital markets, during the last three years. The Company does not have any Whistle Blower Policy in force. The Company has complied with all the mandatory requirements. The Company has complied with non-mandatory requirement relating to Remuneration Committee. Shareholding of Non-Executive Directors as on March 31, 2010 is as below: Sr. No. Name of Director Number of shares held 1 Mr. Ajay Madan Nil 2 Mr. B R Gupta Nil 3 Mr. Harish Bhasin Nil 4 Mr. Prakash Shukla Nil 10. Means of Communications The Company communicates through Quarterly Results, Press Releases and Analyst Calls. The financial results are generally published in local/ regional news papers, financial and other national papers that include Free Press Journal, Mumbai, Navshakti Mumbai, Loksatta, Pune, (regional newspaper), Economics Times, Financial Express and more. The Company s periodic financial results as well as official news releases and presentations made available to the institutional investors and analysts and are displayed on the web site of the Company at 31

33 All the information about the Company is promptly sent through facsimile, and also post to the Stock Exchange where the shares of the Company are listed and are release to press, where ever required, for information of public at large and is available on the Company s website. 11. Non-Mandatory Requirements The Board has setup Compensation & Remuneration Committee and other Committees, the details of which are furnished at Point No. 4 and 6 of this report. 12. Chief Executive Officer (CEO) and Chief Financial Officer (CFO) Certifications As per the requirement of Clause 49 of the Listing Agreement, a certificate duly signed by CEO and CFO of the Company was placed at the meeting of Board of Directors of the Company held on May 24, General Shareholder Information a) Details of ensuing AGM: Day and Date Time Venue Wednesday, July 21, :00 PM Le Meridien, Raja Bahadur Mill Road, Pune b) Financial Year: April 1 to March 31 c) Financial Calendar for the Year : Schedule of the Board Meetings for declaration of Financial Results (tentative and subject to change): Quarter End Date 1 st Quarter Results On or before August 14, nd Quarter Results On or before November 14, rd Quarter Results On or before February 14, th Quarter Results On or before May 30, 2011 d) Date of Book Closure: July 15, 2010 to July 21, 2010 (both days inclusive) e) Dividend payment date: Interim Dividend-February 18, 2010; Final Dividend-July 30, 2010 f) Listing: The shares are listed on National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE) g) Listing on Stock Exchanges and Codes: NSE BSE Exchange Code HOVS ISIN No. in NSDL & CDSL: INE596H

34 h) Market price data: Monthly highs, lows and trading volume for FY NSE Total Month High Low Trade High Low Trade Trade (Rs.) (Rs.) Quantity (Rs.) (Rs.) Quantity Quantity Apr , , ,865 May , , ,704 Jun , , ,778 Jul , , ,974 Aug , , ,924 Sep , , ,092 Oct , , ,163 Nov , ,921 1,506,338 Dec ,900, ,877,766 3,778,443 Jan ,739, ,024,227 6,763,289 Feb , ,554 1,551,937 Mar , , ,297 HOV Services Limited s Share prices versus the NSE Nifty The Chart herein below shows the comparison of the Company s share price movement vis-àvis the movement of BSE Sensex and NSE Nifty: HOVS vis-à-vis BSE Sensex: BSE 33